Published: August 12, 1995

(Page 2 of 2)

The main target of that criticism was the Norwegian Cruise Line, whose ads have won several awards for creativity. No matter. "I told Adam that winning the praise of Ad Age isn't the answer -- attracting new passengers is," Mr. Dickinson said, referring to Adam Aron, chief executive of Kloster Cruise Ltd., Norwegian's parent.

Mr. Aron dismissed Mr. Dickinson's remarks as "tiresome" and "whining." Not only have Norwegian's ads won awards, he said, but "our occupancy the first half of this year is up 7.7 points, to 104 percent, a significantly higher occupancy increase than any of our competitors." (Industry occupancy, which averaged 87 percent last year but slumped to about 80 percent for the first quarter of 1995, is based on two passengers to a cabin. Thus, occupancy above 100 percent reflects three or more in a cabin.)

It is virtually impossible to gauge how much pain the downturn is causing. The industry trade group does not give a line-by-line breakdown of passenger numbers. And because almost all the lines are privately held, it is unclear which ones are losing money or how much.

The biggest companies -- Carnival and Royal Caribbean -- are public and are solidly in the black.

The Carnival Corporation, which owns both Carnival and Holland America, does not break out numbers for the lines, but they represent the bulk of its operations. For the six months ended May 31, the parent had net income of $157.3 million, up 10 percent from the corresponding period in 1994, on revenue of $872.6 million, up 9.8 percent.

Net income at Royal Caribbean was $83 million in the first six months, up 20.6 percent from $68.8 million in the corresponding period last year. Revenue, however, fell 4.2 percent, to $556 million.

Whatever the pain now, few in the industry think the decline is the start of a long-term trend.

"We've had what every other industry has had, a downturn," Mr. Fishkin of the Cruise Line agency said. "We have never had to deal with that before." But, he added, the general view is that it is not going to last.

It had better not -- not with all those new ships on the horizon.

"Right now, we need 18,000 passengers a week, but we'll need 28,000 by the first quarter of 1998," said Rod McLeod, an executive vice president at Royal Caribbean. Its 1,804-passenger Legend of the Seas went into service in May, and five more Royal Caribbean ships are scheduled for delivery through April 1998.

Carnival's 2,040-passenger Imagination recently went into service in the Caribbean, and five more Carnival ships are due by the end of 1998. Holland America, Carnival's sister line, has two ships on order.

The industry's stream of new ships just about guarantees broadly depressed prices for some time to come.

"At least 75 percent of all cruise tickets are already sold at discount, and have been for about five years," as the industry scrambles to fill all the new berths that have come on line in that period, said Murray Markin, president of Strategic Decisions, a travel-related management consulting company in Boca Raton, Fla. "But what's different this year is that the discounts are deeper than before. And with the increased capacity, discounting will continue in the near term."

As if to prove the point, the Royal Cruise Line, also owned by Kloster, is promoting discounts of $500 to $5,500 a couple on published prices for most cruises this fall, while Regency Cruises promises 50 percent discounts on its Panama Canal cruises from October through April.

Cruise lines do not necessarily lose money when they book passengers at a steep discount, or even when they charge them nothing. Once on board, passengers can spend a bundle gambling, buying drinks and taking land tours at each port. And there is little additional cost to the cruise line beyond providing meals.

"We're in a very high fixed-cost business so it's to our advantage to fill every berth," Mr. McLeod of Royal Caribbean said. "Also, unlike a glass of fine wine, cruise ships lose a lot when they're only half full. A lot of the excitement and satisfaction is missing."

Another element of excitement is expected to hit the industry in 1988, when the Walt Disney Company, with its wealth of marketing skills, enters the cruise market with two 2,400-passenger ships. The company is expected to attract many first-time cruisers.

For all their problems, industry executives remain resolutely upbeat. Over time, they say, the industry will make big inroads into the vast market of Americans who have never been on a cruise. And the drawing cards will be all those new ships.

"By the next century," said Al Wallach, a senior vice president of Celebrity Cruises, "there will be a fleet out there of incredibly modern ships that should go a long way toward solving the problems we're facing now."

Chart: "Cruise Fares Take a Dive" shows some of the many cruises whose lowest prices are cheaper in 1995 than in 1994. (Source: Cruise Line Inc.)(pg.33) Graphs: "Fewer Passengers, More Capacity" After years of growth, the cruise line industry saw a decline in total passengers last year. With new ships ready to join their fleets, many lines are looking for new ways to attract customers; "Passengers on Cruise" shows percentage change in number of passengers over the previous year from 1983 to 1993 and "Cruise Ship Berths" shows percentage change in number of berths, or passeger spaces, over the previous year from 1983 to 1994. (Source: Cruise Line International Association)(pg. 35)